Item Number:   7a Exhibit I
Date ofMeeting: 12/13/201 1

AIRPORT. CGOPERATEVE RESEARCH PROGRAM


Resenrce Manuai fer Kmart
Ianerminai Conceeslens

LEIGHFISHER
Burlingame, CA

[N ASSOCIATION WITH
'
EXSTARE FEDERAL SERVICES GROUP, LLC
.
Alexandria, VA












Subscriber Categories
Administration and Management 0 Aviation 0 Finance 6 Terminals and Facilities


Research sponsored by the Federal Aviation Administration

TRANSPORTATION RESEARCH BOARD

WASHINGTON, D.C.
201 1
www.TRB.org


Business Terms and Concession Agreements  149

Table 9-3.  Sample list of financial sanctions in a concession agreement (Sacramento
International Airport).

ctio  AViolation's

Written Notification
.
Hours of Operation
Operations, Service Standards and Employee Standards             $200 Sanction
Pricing
Quality                                               $400 Sanction
Signage
Interference with Utilities                                       $750 Sanction

Deliveries and Vendor Access
$1,000 per occurrence thereafter or default
under Section 3.23 of the Agreement


Maintenance and Repairs \
_ $250 Sanction

.
Sanitation
.
Hygiene and Cleanliness                                 $500 Sanction
Waste Disposal, Grease Disposal Recycling

Health Code Violations                                   $1,000 per occurrence thereafter or default
under Section 3.23 of the Agreement


Even a small newl get the attention ofthe local concession manager and, in particular, cor~
porate management, and can be helpful in communicating the airport 0perator's dissatisfaction
withthe concessionaire's performance, ifnecessary.


9.6 Pricing

For many years, the typical policy regarding airport concessions was simply that concession
aires had to submit the prices they intended to charge their customers to the airport operator for
areviewofreasonableness and subsequentapproval. "Reasonable" pricing in that context'was not
'
generally well dened.
'
Amovement to a structure based on street pricing later emerged and hasbeen adopted at
many
oftoday's airports. At some airports, the concession agreement requires a strict compliance with
street pricing, While, at others, an add~on, such as street pricingplus 10%, is in place. The surveys
conducted for this research indicated that street pricing plus 10% is now the most commonlyused
pricing policyamong airport concessions (except for duty freeWhere prices are most oftenbench.
marked to those at other airports); straight street pricing with
no markup was a close second.
Between 41% and 46% of the airport operators surveyed indicated the use of street pricing plus
10% for their food and beverage, convenience retail, and Specialty retail concessions, While 
between 33% and 38% indicated that they use street pricing with no markup. Other than duty
free, only 5% ofthe airport operators reported having no pricing policy. Airport pricing policies
identied in the surveys conducted for this research are summarized in Figure 9-6.

The pricing policyis usually stated in the concession agreement, but, in
some cases, the pric
ing policy document may be referenced but not included. Pricing policies need to be clearly
:


150  Resource Manual for Airport in-Terminal Concessions
I
Street Pricing + 10%


Street Pricing                                            I


Street Pricing + Other                                          I
El Food

79. Convenience Retail

Street Pricing + 5%                            a Specialty Retail
Egg;
frDuly Free

Benchmarked to Other
'
Airports
i

0%  5%  10% 15% 20% 25% 30% 35%
.
40% 45%  50%
Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11.
Figure 9-6.  Airport pricing policy at surveyed airports by hub size.
I

written and made available during solicitations, as potential concessionaires need to understand
the pricing policy since it will inuence their pro forma revenue and expense projections and
their nancial offers.

Manyin the industry believe that street pricing yields more transactions and higher sales vol
umes, but there is little empirical evidence to support this belief. However, concession develop-
ers are adamant that street pricing has a positive effect on both sales and customer satisfaction.
Survey respondents indicated that they generally believed that pricing limits resulted in higher
overall sales, but they also could not cite empirical evidence to support this belief. In interviews
with concession managers, several noted that complaints were received about concession prices
even where true street pricing is in effect.
Enforcingpricing policies and, in particular, conducting price comparisons to support enforce
ment, can be difcult and time consuming. Comparisons Ofprices for branded concessionswith
offairport equivalents are straiglrtfox'Ward and easiest to conduct. For generic concepts,
or those
with no other branded concepts in the region, care must be taken to identifyreasonable
compa
rabies. The selection ofcomparables has often been a source ofdisagreement. Clear denitions
'
of comparables in the concession agreement help to reduce such disagreements.

While pricing is important to customers, it is just one element of the value proposition of the
concession program. Several concession managers noted that the location, surroundings, types of
products, customer service, portion size, and other factors also weigh heavilyin the customers' per-
ceptions of their shopping experience at the airport and inuence the amount of sales generated.
In interviews with several concessionaires, it was noted that street pricing policies
may not
be realistic given the high cost structure at many airports, particularly large'hub airports where

wage rates, delivery costs, and other operating costs are high. The concessionaires also noted
that the difference between true street pricing, for example, and street pricing plus 10%
can
make a difference between prot and loss. Concessionaires generally believed that pricing poli
cies need to reect the sales volume and cost structure of the airport's concessionaires and take
into account percentage rents, development costs, local wage rates, and other costs.